Occasionally when investing, panicking is prudent

The stock market (or a particular stock) could plunge today — or tomorrow.

Smart investors expect occasional drops, and they don’t panic, as so many do. Bailing out is often the worst thing to do, as bad times can be good times to wait, or even buy. As Warren Buffett has quipped, “Be greedy when others are fearful, but be very fearful when others are greedy.”

Sometimes it makes sense to panic, though — such as:

When you don’t know why you own what you own. If you have no clue why you bought shares of a stock, you’ll have trouble determining when to sell. If the shares plunge, it might be due to a fleeting problem, in which case you should hang on, or it might be due to some serious trouble. Be familiar with your holdings, so you can tell the difference.

When you don’t understand the long-term upward trend of the market. From decade to decade, stocks of great companies and the market as a whole tend to rise in value. You can keep your blood pressure down during market downturns by remembering this.

When you have a short time horizon. If you’re invested in stocks for just a few months, then go ahead and hyperventilate right now. As the past few years have reminded us, anything can happen in the short term. Even stock in wonderful companies can temporarily plunge. Any money you expect to need within the next five (if not 10) years should be out of stocks and perhaps in CDs or money market funds.

When you haven’t learned that it’s the percentage of the market drop that counts, not the points. A 100-point drop was a big deal when the Dow was at 1,000. But when it’s around 14,000, 100 points is less than 1 percent.

Ask the Fool

Question: What are “same-store sales” numbers?

Answer: They reflect sales at stores open a year or more. Imagine that a company’s stock reports sales of $300 million in 2011 and $600 million in 2012. That looks great — 100 percent growth!

But now assume that the company had 10 stores open in 2011 and 20 open in 2012. If its same-store sales for 2012 came in at $300 million, then sales at its stores open for at least a year have not come close to doubling.

If you boost your number of stores, then of course your total sales will probably rise. Some retailers might open many new units, but their average sales per store might be flat or falling.

Same-store numbers (also called “comps”) can help you see the situation more clearly, comparing apples to apples. Expansion can be good, but companies should be increasing sales at their existing stores, too.

Q: How much will health care cost me in retirement?

A: Retirees and pre-retirees should prepare to pay a lot out of their own pocket for medical expenses not covered by insurance or Medicare. According to Fidelity Investments, an average 65-year-old couple retiring this year will need to have $240,000 socked away just to cover health care costs for the following 20 years. (This doesn’t include the cost of long-term care, which many people would find useful.)

Remember, though, that that’s an average. Your ultimate cost could be significantly higher — or lower — than the average. Still, it’s a useful reminder that health costs can be substantial and should be factored into your retirement planning.

My dumbest investment

Struck out: My dumbest investment was made around 2002, when I bought 10,000 shares of a company with an exciting technology that could evaluate baseball umpires. At the time, it was listed in newspapers and in the market. A bit later, it was not listed anywhere. Fortunately, I lost only $1,000.

The Fool responds: If you bought 10,000 shares for $1,000, you paid around 10 cents per share, meaning you were dealing with a company in penny-stock territory. Such companies can be very exciting and tempting, perhaps working on cures for cancer or drilling for oil, but they’re also extra-risky and more easily hyped and manipulated, owing to their small size. They tend not to have track records of growth and profits.

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